Thursday, November 06, 2008

On moral hazard

We need a bailout, they say. Forget moral hazard, they say. Humph! American borrowers are a bunch of liars.
Posted by at 9:46 AM

5 comments:

  1. AnonymousNovember 06, 2008 11:03 AM

    the govt doesn't prosecute mortgage fraud... so why not lie to get a better deal?

    it's all fake money at this point anyway.

    ReplyDelete
  2. AnonymousNovember 07, 2008 9:45 PM

    I think they should all be prosecuted but we need jobs to keep this economy from a depression. It will be the government that will have to create the jobs.

    ReplyDelete
  3. AnonymousNovember 08, 2008 7:50 AM

    Any homeowner in a bubble city with a sizable mortgage should simply stop making payments.

    Do the arithmetic. The value of the house has probably dropped 25-40%. You have negative equity. You can continue to scrape by, making your payments, and in ten years you will STILL have negative equity. Or you can simply stop paying, and one of two things will happen.

    Most likely the lender is already sitting on a mountain of empty foreclosed homes and the last thing they want is yet another. They will rewrite your loan with a lower principal, lower interest rate, or both. You get a deal and your credit rating stays intact.

    The other possibility is that your lender is hard-nosed. He'll try to work with you for a while before foreclosing. In that case you can live in your house payment-free for about a year before eviction. Then you'll rent an equivalent house with far less monthly outlay until your credit improves, at which point you can buy a similar house for 40% less than your current home, using the money you saved as down payment. So what if it takes a few years? You will be much better off financially in the end.

    There is also a third possibility. The government is likely to start bailing out homeowners one way or another.

    Three possible outcomes, all good for you. Can't do it because you'd feel like a deadbeat? First off, you're in good company. Millions of homes are being foreclosed on. Secondly, do any of the Wall St. banks or mortgage brokers have a bad conscience? They knew full well what the outcome would be and went ahead with the scheme anyway, collecting their bailouts and fat bonuses along the way. It's not a virtue to be the last honest guy. That's called being a sucker.

    Finally, remember that you have an obligation to do what's best for your family.

    ReplyDelete
  4. Gary AndersonMarch 07, 2011 12:02 PM

    I think they should all be prosecuted but we need jobs to keep this economy from a depression. It will be the government that will have to create the jobs.

    ReplyDelete
  5. millionMarch 07, 2011 12:02 PM

    the govt doesn't prosecute mortgage fraud... so why not lie to get a better deal?

    it's all fake money at this point anyway.

    ReplyDelete

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